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DYNAMIC INCONSISTENCY IN THE PUBLIC SUPPLY OF LIQUIDITY*

Taizo Motonishi

The Japanese Economic Review, 2004, vol. 55, issue 4, 401-417

Abstract: This paper analyses the optimal control of government securities. The special role of government securities under aggregate macroeconomic shocks results from the government's ability to collect taxes. Liquidity is loosened by an increase in the supply of government securities. The policy‐maker, however, faces a trade‐off between an ex ante incentive for entrepreneurs to expend effort and an ex post efficient utilization of investment opportunities.

Date: 2004
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https://doi.org/10.1111/j.1468-5876.2004.00313.x

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